Rachelle* was 17 and a bit short on cash when she borrowed $60 early last year from online payday lender Cigno.
- $60 loan repayments soared to $800 debt for teen who borrowed money
- ASIC plans to use its powers of intervention to ban loan models handled by Cigno
- Consumer advocates say customers are trapped in ‘debt spirals’
Since then, her quick cash fix has turned into a current debt of $800 that she admits is struggling to repay.
“In just two clicks, it was in my bank,” said Rachelle, who uses a pseudonym to protect her identity.
“But that doesn’t tell you how much it’s going to cost you. It doesn’t tell you how much the late fees are. It doesn’t tell you anything.
“Reimbursements just keep going up and up.”
The 18-year-old, from Palm Island in North Queensland, is among hundreds of borrowers caught off guard by the controversial loan scheme which consumer advocates describe as “one of the of the most harmful individual credit on the market”.
“They only received a small amount but are now paying 10 times more.”
“Rapid and harmful debt spirals”
Cigno is a Gold Coast company that processes same day cash loans and whose director and CEO is former super rugby player Mark Swanepoel.
Rachelle said Cigno uses Facebook ads to target customers like her.
His story is all too common for consumer advocates, who are calling on the Australian Securities and Investments Commission (ASIC) to ban Cigno-processed lending models.
In 2020, ASIC filed a lawsuit against Cigno and its supplier BHF Solutions, alleging they violated the nation’s Consumer Credit Protection Act.
The Federal Court dismissed ASIC’s claim in June 2021, and the full Federal Court has since reserved its decision on ASIC’s appeal.
Separately, ASIC has sought public input to help it decide whether to exercise product intervention powers that would prohibit Cigno’s short-term credit model.
In a joint submission to ASIC, the Consumer Action Law Centre, Financial Rights Legal Centre, Indigenous Consumer Assistance Network (ICAN), Victorian Aboriginal Legal Service and WEjustice said the loans are pushing people into spirals of rapid and more detrimental indebtedness.
“Virtually every consumer we saw who took out such a loan suffered significant harm as a result,” their brief states.
“The fact that an unregulated fringe lending program appears more often in the records than any other major bank or payday lender is a telling indicator of the harm these loans cause in the community.”
Cigno offers loans of up to $1,000 which can be accelerated if the customer wants the money immediately.
The company told the ABC that before accepting a loan, customers acknowledged that they were over 18 and of sound mind and judgment to make their own financial decisions.
Rachelle, however, said no proof was required when she checked the terms and conditions box.
ICAN COO Jillian Williams said the blame lies with Cigno.
“Consumer law protections in Australia make it very clear that the onus is on the creditor to assess a person’s ability to repay a loan,” Ms Williams said.
“Unfortunately with Cigno… they operate outside of those protections.
“We see a $5.95 account maintenance fee, a $50 rejection letter fee, a $79 second rejection letter fee, the $49 rejection fee itself, a collection of $50 tracking fee.”
“Two Sides to Every Story”
In Cigno’s own submission to ASIC, general manager Mark Swanepoel said “there are two sides to every story.”
“ASIC and the mainstream media say we prey on the vulnerable and less sophisticated, charging all our customers exorbitant fees and exploiting the very people we claim to be helping,” Swanepoel wrote.
“The reality is that ASIC, the government regulator, has formed an opinion based on a very small percentage of our customers.”
Mr Swanepoel also accused ASIC of distorting the information.
“We are fighting a large group of hypocrites – leeches [sic] of society that steal more and more freedom and choice from ordinary people behind the veil of good intentions,” he writes.
In another statement to the ABC, Cigno said a fee was added [to customers’ loans] in exchange for not fulfilling the commitment.
“Cigno is extremely transparent about the cost of using our services, as it has always been explained in the application process,” said a claims manager.
“Additionally, we regularly send payment reminders via email and SMS two days before a payment is due…despite this, some of them are only trying to contact us [sic] recently.”
ASIC will seek approval from Federal Treasurer Josh Frydenberg before deciding whether to exercise its product intervention powers again.
life on hold
Rachelle said her credit history hasn’t recovered since she borrowed from Cigno and it’s affecting her future.
“You really want to pay it [back]but you don’t want to pay that much,” she said.
“I got pushed away from a lot of places, like car loans.
“Only from a stupid $60, Cigno got me into debt. I can’t get anything more.”
*Name changed to protect identity